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    Calcuating Effective Annualm Rate (EAR)

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    Calculating EAR. First National Bank charges 12.6 percent compounded monthly on its business loans. First United Bank charges 12.8 percent compounded semiannually. As a potential borrower, which bank would you go to for a new loan?

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    Solution Preview

    We need to calculate the Equivalent Annual Rate. Let us assume we borrow $100, then the compound interest formula for First National Bank ...

    Solution Summary

    The solution explains how to calculate the EAR with different compounding frequency